Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday October 15, 2021.

Equity Indices	Level	1 week	YTD	52-week
S&P/TSX Composite	20,928	2.5%	20.0%	26.8%
S&P 500	4,471	1.8%	19.0%	28.4%
NASDAQ	14,897	2.2%	15.6%	27.2%
Euro Stoxx 50	4,183	2.7%	17.7%	31.0%
Hang Seng	25,330	2.0%	-7.0%	4.9%

Source: Bloomberg, RBC Wealth Management

• TSX closed higher Friday on a record high led by financial and consumer discretionary with health care the laggard. US equities finished higher Friday just off the best levels, following a strong Thursday session. Growth factor was in line today and ahead for the week. WTI crude settled up 1.2% ($82.66), logging an eighth straight week of gains. Canadian dollar lower against USD ($0.808 U.S.).

• Stocks extended week's gains, which have been driven by factors including well-received bank earnings. Analysts have said the early signs from earnings season have shown some positive signals around demand and pricing. However, some companies have continued to call out supply chain challenges and labor shortages as ongoing headwinds.

• While there are signs elevated inflation rates expected to persist well into 2022, analysts have played down stagflation dynamic. Some other positive factors last week include a pullback in yields at the longer-end of the curve, dip buying, and positioning. 

 

Economy

Canada

• Canada’s labour market recovery stretched into September, accumulating an additional 157,000 jobs from August, according to RBC Economics. The unemployment rate dropped to 6.9% in September from 7.1% in August, but remained more than a percentage point above pre-pandemic levels.

• Canadian housing affordability deteriorated across the board in September. According to RBC Economics, ownership costs as a percentage of median household income rose to the highest level in over 30 years. RBC Economics predicts that tight demand supply conditions will continue to put upward pressure on housing prices in the coming months, adding further strain to affordability.

• COVID-19 benefits set to expire this week in Canada. Liberals are considering whether to extend expiring pandemic supports for businesses and individuals.

U.S. 

• Congress passed legislation increasing the government’s borrowing capacity, postponing any potential U.S. default until early December, according to Treasury estimates. There is still no clear path forward on a longer-term solution to the debt ceiling challenge, as partisan divisions remain key obstacles.

• Progress on fiscal policy was similarly slight. While Bloomberg is reporting an emerging consensus among Congressional Democrats for a plan to increase spending by $2 trillion over the next 5–10 years, key divisions remain on which programs to include and how to fund them.

• U.S. employment grew by 194,000 in September, the slowest pace of 2021 and below the 500,000 median estimate in a Bloomberg survey of economists. The jobs news was not all bad, however, as the pace of hiring in August was revised upward by 120,000 and rising average hourly wages in September helped offset some of the consumption impacts of lower job creation.

• Despite the weak job creation last month, we continue to believe the Fed will use its November meeting to announce the kickoff to tapering, with the actual reduction in bond purchases likely beginning in December or January.

Further Afield

• The UK-EU relationship is souring again. The UK is unhappy with the deal it signed with Brussels less than two years ago and wants to renegotiate the Northern Ireland Protocol, or the mechanism that prevents the implementation of a “hard” border between the Republic of Ireland (an EU member) and Northern Ireland, part of the UK.

• China’s Producer Price Index surged 10.7% y/y in September, the biggest jump since November 1995. Factory-gate inflation climbed thanks to a nationwide energy crisis and escalating coal prices. The higher coal prices and the policy goal of reducing energy consumption have led to electricity shortages, resulting in power rationing and factory production stoppages.

 

Notes About Companies in Model Portfolio 

• Apple (AAPL) Bloomberg reported that Apple is likely to slash its iPhone 13 series production target of ~90 mn for 2021 by as much as ~10 mn units, led by supply limitation from certain manufacturing partners, including Broadcom and Texas Instruments. JP Morgan report: “While the supply challenges are top-of-mind at this time, we continue to see the demand and interest from consumers for the iPhone 13 series track better than the low investor expectations (based on our recent survey), and while the timing of the upside for the shares might be pushed out on account of the supply chain challenges, the magnitude of the upside remains intact in our view.”

• Blackrock (BLK) reported Q3 revenue $5.05B and adjusted operating income $1.95B. $98B of long-term net inflows, driven by continued momentum in ETFs and active strategies, with total net inflows of $75B reflecting outflows from low-fee cash management and advisory AUM. Management: “Organic growth was broad-based, spanning our active platform as well as in each of our ETF product categories. We delivered our 10th consecutive quarter of active equity inflows and client demand for ESG remains strong, with $31B of inflows across our sustainable active and index strategies.”

• Intact Financial (IFC) Intact pre-released Q3/21 catastrophe losses of ~$365MM (pre-tax), which compares to our prior estimate of ~$174MM (from late July). The company noted the claims mostly reflected severe weather events (rain, hail, etc.) in Alberta, Ontario and Atlantic Canada, flooding in the U.K. and Hurricane Ida. IFC reports Q3/21 results on November 9. RBC Capital Markets maintains an Outperform rating.

• JP Morgan (JPM) JPM reported 3Q21 net income of $11.7 billion, or $3.74 per share. The beat was primarily due to better-than-anticipated net interest income and a significant provision benefit. The provision for credit losses was a net benefit of $1.5 billion, compared to an expense of $611 million in the prior year, driven by reserve releases in the current quarter. From a segment reporting basis, all segments exceeded our expectations with its Corporate & Investment Bank having the strongest outperformance. Assuming the economy continues to expand throughout 2021, JPM should steadily drive its earnings power with loan growth associated with the strengthening in the economy.

• Johnson & Johnson (JNJ) The company anticipates a decision from the FDA on the EUA amendment for a booster dose of the Johnson & Johnson COVID-19 vaccine in the coming days, and plans to submit relevant data to other regulators, the World Health Organization (WHO) and National Immunization Technical Advisory Groups (NITAGs) worldwide to inform decision-making on local vaccine administration strategies, as needed. The Centers for Disease Control and Prevention's (CDC) Advisory Committee on Immunization Practices (ACIP) will discuss the use of boosters and provide a potential recommendation on 21-Oct.

• Microsoft (MSFT) is shutting down LinkedIn in China. LinkedIn Blog: “We're also facing a significantly more challenging operating environment and greater compliance requirements in China...we've made the decision to sunset the current localized version of LinkedIn, which is how people in China access LinkedIn's global social media platform, later this year. Our new strategy for China is to put our focus on helping China-based professionals find jobs in China and Chinese companies find quality candidates. Later this year, we will launch InJobs, a new, standalone jobs application for China."

• United Health Group (UNH) reported 3Q21 adjusted EPS was $4.52 vs. our estimate $4.38 estimate and $4.41 consensus, representing an approximate 2.5% beat. Consistent with recent quarters, the performance reflected solid topline growth and better than expected Medical Loss Ratio (MLR) of 83.0%, vs. 83.4% consensus. With MLR 40 bps below street expectations, which should quell investor fears over potentially exorbitant COVID-related costs from the delta surge. Consolidated revenue increased 11.1% YOY to $72.3B, reflecting impressive growth at both Optum (pharmacy benefit), +13.9%, and UHC (universal healthcare), +11.0%. Meanwhile consolidated operating income grew 22.8% YOY to $5.7B, with margin up 80 bps to 7.9%.

 

Feel free to contact me with any questions and/or to discuss investment ideas.

I appreciate the opportunity to serve you and look forward to continuing to help you accomplish your long-term financial goals.

 

Regards,

Shiuman